HupSteel

[Underdogger]

By the end of this month, cash level will increase to 15 cents, approximately 50% of market cap (30.5 cents as of now).

Debt can easily be pared down using the strong/stable cashflow from existing business without the need to "disturb" the cash level at all. My estimation is that Group Level Debt will be pared to zero in 3 to 4 quarters. By then, MEIL will also be able to pay out dividend. So, New Toyo will have an additional source of dividend.

Just wait and see

guys correct me if I am wrong but from my calculations if we are talking about hoarding cash,

the so called cash hoard of hupsteel is ~25% of market cap, minus the debts which are ~21%+ of market cap is not a lot of net cash.

Same as New toyo, cash 28.75% market cap - debt 13.33% is a bit more than hupsteel net cash but also not a lot of net cash.

on the other hand Neratel / Riverstone have 20% market cap as net cash with 0 debt

Namlee, techwah, spindex which i previously mentioned all have 38%+ market cap as net cash.

So with hupsteel and new toyo i dun think cash on hand is of such high relavance to the valuation. Rather the businesses and unlockable values are their strong points...
and as I said above definitely doesn't look like hoarding much compared to other small caps. maybe new toyo is starting to hoard a bit...

[TheMillennium]

Another share buyback today. How much free float is there left?

Chance to delist too?

[paullow]

Another share buyback today. How much free float is there left?

Chance to delist too?

Hi there,

Wanted to answer your question but website was down.

Yes, freefloat now around 619M.

Chances to delist is low for the reasons I alluded to earlier.



As usual, do your own research. Weigh the risks and benefits together with your own investment profile.

http://paulcokefreedom.blogspot.sg

[brattzz]

Long Term Stock...
Steel Biz have to buck up a bit....
Property Assets more valuable than Co. Cap, don't think Co. will sell developed properties too, rather, rental seems the best!

Won't go under and won't be too HUAT too.. have to be patient and wait for Steel Biz cycle to come back!
More rev = more profit = more dividends = higher share prices!

[kelvesy]

Long Term Stock...
Steel Biz have to buck up a bit....
Property Assets more valuable than Co. Cap, don't think Co. will sell developed properties too, rather, rental seems the best!

Won't go under and won't be too HUAT too.. have to be patient and wait for Steel Biz cycle to come back!
More rev = more profit = more dividends = higher share prices!

In my opinion, it is still a long wait. Despite its compelling value, perhaps, it would be wise to look elsewhere as well.

[Stockerman]

property sector is likely to be "depressed" for the medium term 3 to 5 yrs at least. Govt has just introduced yet another round of cooling measures! Keep up the good work!

Good Luck to Hupsteel. If it drops below 20 cents, might be a good buy..

[kelvesy]

Just sharing a bit of knowledge of steel industry. May sound useless to some, but good for the rest.

Its performance is very sensitive with the economic cycle, accompanied by intense price competition, slim profit margin and cyclicality.

I believe HupSteel has little or no influence on the price of the products they sell, due to the nature of their products. It is not a differentiated good. But I guess they have been trying to add value to their products to command certain premium. Customers usually choose suppliers based on price. But overall, HupSteel is considered price-takers rather than price-makers. Hence, profit margins tend to be very slim. As we know, only high asset utilization can compensate for low profit margins. The only way to be better than competitors is wise inventory management skill and managing working capital - squeezing out more from your assets (fixed asset turnover).

By achieving high production volumes to lower the fixed cost per unit of steel produced, when demand is strong, they can make a solid profit because incremental production beyond the breakeven point comes with a high margin. But when demand falls, fixed costs become a burden that can threaten the business.

How can a steel company have economic moat? The only economic moat, is being the low-cost producer - this is obtained by increasing their size and attaining economic of scale. In the low-cost situation, it is able to reduce its price and gain market share. We have to bear in mind that there are many foreign competitors out there as well - who, maybe, are able to offer more value-addness. I guess, certain companies would want to buy HupSteel's products could be due to benefit of geography and cost of imports, etc.

[edragon]

They are termed as stockists so availability of the right products is their strengths. Especially structural products which takes few months lead time.

[Ben]

Just sharing a bit of knowledge of steel industry. May sound useless to some, but good for the rest.

Its performance is very sensitive with the economic cycle, accompanied by intense price competition, slim profit margin and cyclicality.

I believe HupSteel has little or no influence on the price of the products they sell, due to the nature of their products. It is not a differentiated good. But I guess they have been trying to add value to their products to command certain premium. Customers usually choose suppliers based on price. But overall, HupSteel is considered price-takers rather than price-makers. Hence, profit margins tend to be very slim. As we know, only high asset utilization can compensate for low profit margins. The only way to be better than competitors is wise inventory management skill and managing working capital - squeezing out more from your assets (fixed asset turnover).

By achieving high production volumes to lower the fixed cost per unit of steel produced, when demand is strong, they can make a solid profit because incremental production beyond the breakeven point comes with a high margin. But when demand falls, fixed costs become a burden that can threaten the business.

How can a steel company have economic moat? The only economic moat, is being the low-cost producer - this is obtained by increasing their size and attaining economic of scale. In the low-cost situation, it is able to reduce its price and gain market share. We have to bear in mind that there are many foreign competitors out there as well - who, maybe, are able to offer more value-addness. I guess, certain companies would want to buy HupSteel's products could be due to benefit of geography and cost of imports, etc.

I beg to differ. I do not know Hupsteel in depth but I do have some knowledge of another steel company, Asia Enterprise, and I believe both companies have the same business model. They are stockist, not steel mill, and so they do not manufacture steel per se. Increasing their size of operations does not guarantee increase profit, in fact, it can be detrimental to their bottom line if not carefully done. This is what happened to Asia Enterprise when they have to write off/down huge amount of inventory due to collapsing steel price a few years back. IMHO, the critical success factor is the ability to foresee customers’ requirements ahead of time and good inventory management. In short, you must be able to read the market better than others, stock the products that your customers want and predict the movement of future steel price. Not a simple task.

It would be good to see some M&A among these stockist companies in Singapore to create a sizable steel company that has stronger bargaining power with suppliers and customers. But many of these steel companies are run by family members, except maybe HG Metal. I don’t think such a scenario will happen anytime soon.

[kelvesy]

Hi Ben, thanks for contributing your views. I admit I am no expert either.

I absolutely agree with you on the fact that good inventory management is critical and simply increasing the size is not a sure way to increase profits. But it does reduce the fixed cost per unit of product sold.

Perhaps, I didn't deliver my point well. It is not to deliver high production volumes blindly - but more to explain why good times this industry does better and why bad times this industry does worse. HupSteel was a victim, as we can see, they still have lots of inventory from the past. Now that steel prices took a hit, write off/down inventories are common for most companies. Cheers.